Analyst Corner| Bajaj Consumer: Maintain ‘hold’ with TP of Rs 167

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Updated: Jun 23, 2020 8:08 AM

Bajaj Consumer Care’s (Bajaj) Q4FY20 revenue, EBITDA and PAT dip of 28.6%, 69.6% and 59.6% YoY, respectively, came below our estimates.

Bajaj Consumer Care, EBITDA, COVID-19, Bajaj Nomarks brand, bajaj performance, daburQ4FY20 marked the worst quarterly sales decline in Bajaj’s history with overall sales plunging 28.6% YoY

Bajaj Consumer Care’s (Bajaj) Q4FY20 revenue, EBITDA and PAT dip of 28.6%, 69.6% and 59.6% YoY, respectively, came below our estimates. The company’s overall value market share in the hair oil category stood at 10.1% (~9.6% a year ago). Though all players are affected by the COVID-19-induced lockdown, Bajaj’s performance is worse than peers — Dabur’s hair oil segment down 20.8% YoY and Marico’s Parachute down 8.0% YoY. Moreover, dividend of INR2/share is the lowest in the last decade primarily due to unce-rtain economic scenario. LLP prices fell ~5% YoY, which led to gross margin exp-ansion of 200bps YoY. However, sharp spike in other expenditure (up 20.3% YoY) led to abnormally low EBITDA margin of 13.5%. Maintain ‘HOLD’.

Q4FY20 marked the worst quarterly sales decline in Bajaj’s history with overall sales plunging 28.6% YoY. After factories shutting down, production resumed by first week of May at all the company’s manufacturing units with 70% operational efficiency. Like many other consumer goods companies, Bajaj also launched a hand sanitiser under its Bajaj Nomarks brand. Considering the uncertainty caused by lockdown, the micro-segmentation strategy sugge-sted by Bain has been put on hold and the company will revisit it once things normalise. Jaideep Nandi has been appointed as the managing director effective July 1, 2020, taking over from Sumit Malhotra who is set to retire. Malhotra, however, will continue to be on the board as director and advisor.

Bajaj’s rural growth was faster than urban. Current production back at 70% level. The macroeconomic situation has been challenging throughout FY20 with the hair oil category facing significant headwinds with tepid growth. Until Feb, rural hair oil market declined 0.5%. Urban was growing at 2% and overall market was growing at 0.9%.

Bajaj’s volume growth, after ‘restaging’ of the ADHO portfolio, was steady. However, the recent consumption slowdown and now COVID-19-related lockdown have taken a toll on volumes. Although the financial stress at the promoter level has been alleviated, sustained rural slowdown and low growth of the hair oil category persist. Hence, we maintain ‘HOLD/SP’ with TP of INR167.

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